In re Interest Rate Swaps Antitrust Litig.

IN RE: INTEREST RATE SWAPS ANTITRUST LITIGATION

This Document Relates to All Actions

16 MD 2704 (PAE)

16 MC 2704 (PAE)

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

March 13, 2019

AMENDED OPINION & ORDER

PAUL A. ENGELMAYER, District Judge:

This decision resolves a motion by the putative class plaintiffs in this multi-district litigation for leave to file a proposed Fourth Amended Complaint ("PFAC"). The Court has sustained as well-pled plaintiffs' Sherman Act § 1 claims covering the years 2013-2016. Fact discovery as to these claims is set to close soon. The Court, however, has twice ruled against class plaintiffs on their bid to also pursue claims covering the five preceding years, 2008-2012. For the reasons that follow, the Court denies the motion to amend to the extent that plaintiffs again seek to add claims for 2008-2012. The Court, however, grants the motion to the extent that plaintiffs seek to amplify on their factual allegations bearing on the 2013-2016 claims.

I. Background

This case centers on claims of § 1 violations affecting the market for interest rate swaps ("IRS" or "IRSs"). Plaintiffs claim that the investment banks who dealt in IRSs (the "Dealer Defendants" or "Dealers") conspired to block the emergence and later the survival of electronic trading platforms that would have permitted IRSs to be traded on an anonymous, "all-to-all" basis. Such platforms, plaintiffs claim, would have provided price benefits to investors relative to the over-the counter ("OTC") model by which IRSs were historically traded, i.e., dealer-to-investor, with the investor's name disclosed to the dealer.

The Court has issued two decisions reviewing the claims and procedural history. On July 28, 2017, the Court issued a 108-page decision resolving motions to dismiss the Second Amended Complaints: one by the putative class of IRS investors ("SAC"); the other by non-class plaintiffs Javelin Capital Markets LLC ("Javelin") and Tera Group Inc. ("Tera"), each of which in or after 2013 opened electronic platforms for all-to-all trading of IRSs ("JTSAC"). See In re Interest Rate Swaps Antitrust Litigation, 261 F. Supp. 3d 430 (S.D.N.Y. 2019) ("IRS I"). On May 23, 2018, the Court issued a 59-page decision resolving class plaintiffs' motion for leave to file a proposed Third Amended Complaint ("PTAC"). See In re Interest Rate Swaps Antitrust Litigation, Nos. 16 MD 2704 (PAE) & 16 MC 2704 (PAE), 2018 WL 2332069 (S.D.N.Y. May 23, 2018) ("IRS II").¹ The Court incorporates those decisions by reference and, in summarizing them below, recites only necessary background.

A. IRS I

On November 25, 2015, the initial complaint before this Court was filed. On June 2, 2016, the United States Judicial Panel on Multi-District Litigation transferred all related matters to this Court for coordinated or consolidated pretrial proceedings. Dkt. 1.² On December 9, 2016, after appointment of interim lead counsel for the class and the setting of a briefing schedule, class plaintiffs filed the SAC, Dkt. 142, and the Javelin/Tera plaintiffs filed the JTSAC, Dkt. 145.

On July 28, 2017, the Court, in IRS I, ruled on the motions to dismiss the SAC and JTSAC. The Court sustained the § 1 claims as to 2013-2016 (made by both sets of plaintiffs) but dismissed the § 1 claims as to 2008-2012 (made by class plaintiffs only). For each period, plaintiffs had pursued claims of per se illegal conduct.

As to the 2013-2016 period, the Court held that plaintiffs had plausibly pled a per se illegal group boycott among IRS Dealers. In this period, the Court held, plaintiffs had pled significant parallel conduct among the Dealers sufficient to give rise to an inference of an agreement among them aimed at boycotting and otherwise hobbling the platforms opened by Javelin, Tera, and a third entity, trueEX LLC ("trueEX"). In or after 2013, after the effective date of the Dodd-Frank Act, these three entities had each opened a "swap execution facility," or "SEF"—a platform on which IRSs could be electronically traded in an anonymous, "all-to-all" manner. Dodd-Frank, enacted July 21, 2010 and effective in 2013 after significant rulemaking and regulatory implementation, had anticipated, enabled, and mandated the opening of SEFs. See generally IRS I, 261 F. Supp. 3d at 472-81.

As to the 2008-2012 period, however, before Dodd-Frank's mandates had taken effect, the Court did not find plausible class plaintiffs' claims of a per se unlawful agreement among Dealers to prevent from coming into existence electronic trading platforms permitting all-to-all anonymous trading of IRSs. See id. at 463-72. Independently, the Court held, class plaintiffs lacked antitrust standing to pursue their pre-2013 claims. To pursue such claims, the Court noted, a plaintiff must be an "efficient enforcer" of the antitrust laws; a central factor in that inquiry is whether the plaintiff's claimed injury is speculative. The Court held that class plaintiffs' claims of injury from the failure of electronic trading to emerge in 2008-2012 were unduly speculative, as they required the finder of fact to postulate an "alternative history of IRStrading" that "require[d] too many leaps of imagination and guesswork for a claim of class injury to be viable." Id. at 494 (citation omitted). The Court, finally, held that plaintiffs' claims based on injuries incurred before November 25, 2011 fell outside the four-year statute of limitations and were time-barred. Id. at 487-90.

B. IRS II

After IRS I, the litigation proceeded to discovery, pursuant to a court-approved case management plan. See IRS II, 2018 WL 2332069, at *4. On February 21, 2018—the last day on which motions seeking leave to amend were authorized—class plaintiffs moved for leave to file the PTAC. Id. at *5. It sought to add a new class plaintiff, new allegations as to 2013-2016, and, most consequentially, to restore the putative class's claims as to 2008-2012. Id. at *6.

On May 23, 2018, the Court in IRS II resolved the motion for leave to amend. The Court authorized the addition of a new plaintiff and of new allegations as to 2013-2016. Id. at *8-9. The Court, however, denied the motion to restore the 2008-2012 claims, under Federal Rule of Civil Procedure 15(a), for the following reasons.

Futility: The PTAC did not remedy the deficiencies that had led to dismissal of the SAC's claims as to 2008-2012 and thus was futile. Id. at *9-19. This was so for multiple reasons, four of which the Court developed. First, the PTAC's theory of investor injury from the failure of electronic all-to-all IRS trading to then emerge remained "a product of speculation, imagination, and guesswork," id. at *10, making class plaintiffs' claims of injury "far too conjectural to survive," id. at *9. Second, the PTAC's allegations as to "Project Fusion," a joint venture among Dealers, did not make out per se unlawful conduct under § 1, and the PTAC's two paragraphs of allegations as to the rule of reason were too incomplete and spare to make out a rule of reason claim. Id. at *11-13. Third, the PTAC's allegations as to the Dealers' conducttowards Swapstream, a proposed platform of the Chicago Mercantile Exchange ("CME") for clearing transactions, also did not viably plead a § 1 violation, either per se (as the PTAC pled) or under the rule of reason (a theory the Court sua sponte considered). Id. at *13-17. Fourth, plaintiffs' claims predating November 25, 2011 remained time-barred. Id. at *18-19.

Independently, the Court held, considerations of delay, prejudice, and gamesmanship all required denial of the motion for leave to add claims for 2008-2012. Id. at *19-28.

Delay: The parties had organized and conducted discovery based on the 2013-2016 parameters. Discovery disputes had been negotiated and litigated based on the premise that these were the sole claims plaintiffs were pursuing. Permitting the 2008-2012 claims would have upended the negotiated and court-approved discovery schedule. Allowing the PTAC's pre-2013 claims "would [have been] functionally tantamount—or close to it—to allowing a new MDL-sized lawsuit to be hitched to the existing claims." Id. at *20; see also id. at *20-22 (listing discovery areas uniquely relevant to 2008-2012 claims and assessing implications of reopened discovery, as to parties, third parties, and data gathering).

Prejudice: Adding the 2008-2012 claims would have prejudiced defendants, who for seven months had expended time and money in discovery based on the "only rational assumption as to this case's temporal scope: that plaintiffs' surviving claims were limited to 2013-2016." Id. at *22; see also id. at *22-23.

Gamesmanship: Plaintiffs' counsel admitted that they had been intending and planning since the day IRS I issued to move to amend to revive the 2008-2012 claims. The Court chronicled plaintiffs' counsels' communications to the Court and the defense between IRS I and the PTAC's filing. Rather than disclose this intention, these communications instead repeatedly implied the opposite. Id. at *23-27. "In ways large and small," the Court stated, "plaintiffs'counsel throughout these seven months fed the false impression that the temporal scope of plaintiffs' claims was fixed at 2013-2016. The result was to mislead the Court and the defense and to occasion extensive work and expense that—had the retooled 2008-2012 claims proven viable—would have largely gone wasted." Id. at *24; see also id. at *24-26 (reviewing communications). The Court rejected plaintiffs' counsels' justifications for such "coy" and "tactical" behavior—that the work product doctrine or the need to avoid witness tampering necessitated it. Id. at *27. This "unacceptable gamesmanship," id. at *27, independently warranted denying the motion to add the 2008-2012 claims, id. at *28.

After the decision in IRS II, plaintiffs filed a Third Amended Complaint, consistent with the Court's rulings. Dkt. 398. Discovery continued, pursuant to the case management plan.

C. The PFAC

O...